ARTW 10-K & 10-Q changes, risk factors and insider trading

Our Agricultural Products segment saw a 34.7%13.1% decline in revenue in fiscal 20242025 due to suppressedas commodity prices,prices remained depressed from highs in 2023 coupled with high borrowing rates and saturatedrising inventoryinput levels.costs. Our Modular Buildings segment increased revenues by 25.9%4.0% and once again recorded strong profitability. Our consolidated revenues from continued operations decreased 19.1%6.2% year onover year, and we hadrecorded $461,000$289,000 of operating income from continuing operations for the fiscal year ended November 30, 2024.2025.

We finished the year ended November 30, 20242025 with approximately $94,000$1,035,000 of consolidated net loss from continued operations, $307,000 of net income and saw our working capital increase by approximately $802,000.$1,851,000, primarily driven by increased inventory levels in our Agricultural Products segment as we prepared for anticipated year-end tax-motivated purchases and potential market improvement.

We expect to have access to capital as needed throughout fiscal 20252026 from the collection of receivables, sale of inventory and the expected receiptcompletion of approximatelyprojects $1.2under million of gross proceeds from a filed Employee Retention Credit or ERC. Due to the timing of filing an ERC claim after the IRS announced a moratorium on processing applications, and uncertainty surrounding the nature and timing of the claim approval and subsequent payment process, recognition of the claim is deferred until payment is received. Accordingly, the claim has not been recordedcontract in receivables,our assets,Modular orBuildings income.segment. On November 30, 20242025, we had $3,571,563$747,563 available on our line of credit and $930,036$4,012,816 of collateral in excess collateral towardsof our borrowing base.borrowing. Our working capital remainedcontinued strongto at approximately $6,492,000strengthen in fiscal 20242025, up to approximately $8,343,000, with a current ratio of 1.98.2.30, an increase from $6,492,000 in working capital and a current ratio of 1.98 in fiscal 2024. Our banking relationship remains positive, and we expect it to only strengthen as our balance sheet continues to improve through the retirement of debt. We believe that our current cash and financing arrangements will provide sufficient cash to finance operations for the next 12 months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future.

Our significant accounting policies are described in Note 11, “Summary of Significant Accounting PoliciesPolicies,” to our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report. Critical accounting policies are those that we believe are both important to the portrayal of our financial condition and results of operations and require our most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

In certain circumstances, upon the customer’s written request, we may recognize revenue when production is complete, and the goods are ready for shipment. At the customer’s request, we will bill the customer upon completing all performance obligations, but before shipment. The customer dictates that we ship the goods per its direction from our manufacturing facility, as is customary with this type of agreement, in order to minimize shipping costs. The written agreement with the customer specifies that the goods will be delivered on a schedule to be determined by the customer, with a final specified delivery date, and that we will segregate the goods from our inventory, such that they are not available to fill other orders. This agreement also specifies that the customer is required to purchase all goods manufactured under this agreement. Title of the goods will pass to the customer when the goods are complete and ready for shipment, per the customer agreement. At the transfer of title, all risks of ownership have passed to the customer, and the customer agrees to maintain insurance on the manufactured items that have not yet been shipped. We have operated using bill and hold agreements with certain customers for many years, with consistent satisfactory results for both the customers and us. The credit terms on this agreement are consistent with the credit terms on other sales. All risks of loss are shouldered by the customer, and there are no exceptions to the customer’s commitment to accept and pay for these manufactured goods. RevenuesThere were no revenues recognized when goods were ready for shipment in fiscal 2024 were approximately $1,073,0002025 compared to $3,110,000$1,073,000 in fiscal 2023.2024.

Our returnsreturn policy allows for new and saleable parts to be returned, subject to inspection and a restocking charge, which is included in net sales. Whole goods are not returnable. Shipping costs charged to customers are included in net sales. Freight costs incurred are included in cost of goods sold. Customer deposits consist of advance payments from customers, in the form of cash, for revenue to be recognized in the following year.

For information on product warranty as it applies to ASC 606, refer to Note 99, “Product WarrantyWarranty,” contained in our financial statements in “Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA” of this report.

Our consolidated net sales from continuing operations totaled $24,499,000$22,975,000 for the 20242025 fiscal year, which represents a 19.1%6.2% decrease from our consolidated net sales of $30,281,000$24,499,000 for the 20232024 fiscal year. WeRevenue increased revenue in our Modular Buildings segment while our Agricultural Products segment wascontinued metto withexperience difficult market conditions in fiscal 2024.2025. Our consolidated gross profit as a percentage of net sales increaseddecreased to 29.8%27.3% in the 20242025 fiscal year compared to 28.3%29.8% of net sales in the 20232024 fiscal year. Our consolidated operating expenses from continuing operations decreased by 2.9%,12.7%, from $7,053,000 in the 2023 fiscal year to $6,849,000 in the 2024 fiscal year to $5,977,000 in the 2025 fiscal year. The majority of our corporate general and administrative expenses are borne by our Agricultural Products segment, including costs associated with being a public company. The Agricultural Products segment represented $5,665,000$4,439,000 of our total consolidated operating expenses, while our Modular Buildings segment represented $1,184,000.$1,539,000.

Our consolidated operating income from continuing operations for the 20242025 fiscal year was $461,000$289,000, compareda to37% decrease from consolidated operating income of $1,531,000$461,000 for the 20232024 fiscal year. Our Agricultural Products segment had an operating loss of $1,510,000,$1,462,000, and our Modular Buildings segment had operating income of $1,971,000.$1,751,000.

Consolidated net income for the 20242025 fiscal year was $307,000$1,035,000 compared to consolidated net income of $267,000$307,000 in the 20232024 fiscal year.

Agricultural Products. Our Agricultural Products segment’s net sales for the 20242025 fiscal year were $14,663,000$12,749,000 compared to $22,467,000$14,663,000 during the 20232024 fiscal year, a decrease of $7,804,000,$1,914,000, or 34.7%.13.1%. Commodity prices in the agricultural marketmarket, particularly on row crops, which dropped below five-year averages in fiscal 2024, whichcontinued leadto be weak in fiscal 2025. This led to a strongsecond decreasestraight infiscal demandyear forof ourdecreased products.demand. ThisOur demandcattle decreasecustomers wasbenefited notfrom isolatedrecord tobeef our company, instigating mass layoffs and major production cutsprices in fiscal 20242025, forwhich helped offset some of the decreased demand. We believe our experience in fiscal 2025 was similar to many others in our industry. AnotherOur factoragriculture inbusiness theis saleshighly decreasecyclical, wasand thewith amountforecasts of inventorycontinued oninterest dealerrate lotsrelief atfor thefarmers, endas ofwell fiscalas 2023.continued Many dealers were oversaturated with inventory related to excess demandincreases in 2023 from high commodity prices and supplyeasing chains'of inabilityrising input costs, we believe things could begin to keep up. This turned drasticallyimprove in the first quarter of fiscal 2024, as increasing interest rates and declining commodity prices decreased expected net farm income.2026.

Our Agricultural Products segment’s operating expenses for the 20242025 fiscal year were $5,665,000$4,439,000 compared to $5,920,000$5,665,000 for the 20232024 fiscal year, a decrease of $255,000,$1,226,000, or 4.3%.21.6%. AOur largeselling shareexpenses accounted for approximately $450,000 of the operating expense decreasedecrease. isOur relateddirector toof oursales pursued a new opportunity at the end of fiscal 2024 and we did not replace him. We also had an inside salesperson depart at the same time, which further decreased salaries and travel costs in selling expenses,expense. mostTo notably,fill commissionthe expense,gaps forleft whichby these employees, we sawpromoted aan decreaseinside of $418,000 due to the large sales decreasesalesman and the hiringCEO, CFO and VP of anOperations insidestepped salesperson.in Someto ofabsorb thisday-to-day decreasesales wasresponsibilities. offsetWe withalso addedutilized salarysome forexisting territory representatives to help better service our customers after the inside salesperson and travel expense.departures. Our general and administrative expenses increaseddecreased approximately $333,000$689,000 from fiscal 2023.2024 The increase ispartially due to $186,000our CEO stepping down in October of additional2024 salaryand expenseother duepersonnel layoffs. Our chairman of the board stepped in to wagefill increasesthe CEO role in October of 2024 and fromhas been serving in this role since. We expect our current CEO to remain in the hiringrole of a HR manager atfor the endforeseeable offuture. We believe this will avoid extra administrative expenses, which is advantageous in today's market conditions. In fiscal 2023 along with a $48,000 increase in computer contract expense related to an enterprise resource planning or ERP conversion that2024, we completed in August of 2023. We also paid out approximately $201,000 in early retirement benefits to employees in the spring of fiscal 2024 in order to drop our headcount to align with our lessened demand. WeThis estimateimpacted theour earlygeneral retirementand willadministrative save us $263,000expense in wages2024; andit benefitswas annuallynot movingrepeated forward.in In addition to early retirement, we also enacted layoffs and strategic terminations that are expected to cut approximately $750,000 of operating expenses annually.2025. Our engineering expenses decreased approximately $166,000$87,000 from fiscal 20232024 due to a reduction in headcount in our engineering department. We expect the engineering headcount reduction to be temporary, as we recognize the strategic value in new product development and continued product improvement. We focused our engineering effort in fiscal 2025 on new product development and successfully used other resources to take non-value added inquiries off our engineering team. Total loss from operations for our Agricultural Products segment during the 20242025 fiscal year was $1,510,000$1,462,000 compared to operating incomeloss of $664,000$1,510,000 for the 20232024 fiscal year. TheDespite suddenthe deterioration13.1% decrease in revenue, we improved our results. We also benefited from an employee retention credit refund of theapproximately agricultural$1,235,000 marketsthat inbrought fiscalour 2024net wasloss theto primary driver$341,000 for thethis decline in operating income from fiscal 2023. We reacted quickly when we identified adverse market conditions early on in fiscal 2024, and began right-sizing operations and overhead expenses to facilitate better performance in fiscal 2025.segment.

Discontinued Operations. On June 7, 2023 we announced we would be discontinuing our Tools segment with the last day of normal operations occurring on July 14, 2023. Just over a year later, on October 21, 2024, we completed the sale of the remaining real estate associated with our Tools segment for $1,800,000. The assets and liabilities of this segment were gone prior to November 30, 20242025 and will no longer report discontinued operations in our current year financials moving forward. Our discontinued operations generated approximately $1,271,000 from operating, investing and financing activities mainly related to closing activities and the sale of real estate.estate in fiscal 2024. Our Tools segment reported netno income of $402,000activity for the twelve months ended November 30, 20242025 compared to net lossincome of $496,000$402,000 in the same period of fiscal 2023.2024.

We are subject to a number of trends and uncertainties that may affect our short-term or long-term liquidity, sales revenues, and operations. Similar to other farm equipment manufacturers, we are affected by items unique to the farm industry, including fluctuations in net farm income resulting from changes in commodity prices, crop damage caused by weather and insects, government farm programs, interest rate fluctuations, rising input costs and other unpredictable variables. Other uncertainties include our OEM customers and the decisions they make regarding their current supply chain structure, inventory levels, and overall business conditions. Management believes that our business is dependent on the farming industry for the bulk of our sales revenues. As such, our business tends to reap the benefits of increases in net farm net income, as farmers tend to purchase equipment in lucrative times and forgo purchases in less profitable years. Direct government paymentpayments over the past few years and costs of agricultural production are increasing; further increases in the value of production will benefit our business, while any future decreases in the value of production will decrease net farm net income and may negatively affect our financial results.

Our modular building sales are somewhat seasonal, and we believe that this is due to the budgeting and funding cycles of the universities that commonly purchase our modular buildings. We believe that this cycle can be offset by building backlogs of inventory, by increasing sales to other public and private sectorsentities and by creating repeatable business opportunities.

We have a Bank Midwest credit facility consisting of a $5,500,000$4,000,000 revolving line of credit, pursuant to which we had borrowed $1,928,437,$3,252,437, with $3,571,563$747,563 remaining, as of November 30, 2024,2025, and onetwo term loan,loans, which had an outstanding principal balancebalances of $1,779,877$1,666,762 and $ 514,406 as of November 30, 2024.2025. The revolving line of credit is being used for working capital purposes. We also have two Economic Injury Disaster Loans provided by the U.S. Small Business Administration with an aggregate principal balance of $315,089$309,261 as of November 30, 2024.2025.

Our loans require us to comply with various covenants, including maintaining certain financial ratios and obtaining prior written consent from Bank Midwest for any investment in, acquisition of, or guaranty relating to another business or entity. We were in compliance with the covenants in place under the Bank Midwest credit facility and term loans as of November 30, 2024.2025.

We believe that our current cash and financing arrangements will provide sufficient cash to finance operations for the next 12 months. We expect to continue to rely on cash from financing activities to supplement our cash flows from operations in order to meet our liquidity and capital expenditure needs in the near future. We expect to continue to be able to procure financing upon reasonable terms.terms as necessary.

Our critical accounting policies involving the more significant judgments and assumptions used in the preparation of our financial statements as of FebruaryMay 28,31, 2026 remain unchanged from November 30, 2025. Disclosure of these critical accounting policies is incorporated by reference from Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended November 30, 2025.

Our consolidated corporate sales from continuing operations for the three- monthand periodsix-month periods ended FebruaryMay 28,31, 2026 were $$7,854,000 6,640,000and $14,494,000, respectively, compared to $5,141,000$6,337,000 and $11,478,000, respectively, during the same periodperiods in fiscal 2025,2025. anOur increasesales ofincreased $1,499,000,$1,517,000, or 29.2%.23.9% for the three months ended May 31, 2026 and $3,016,000, or 26.3% for the six months ended May 31, 2026 compared to same periods in fiscal 2025. Consolidated gross margin for the three and six months ended FebruaryMay 28,31, 2026 was 28.8%25.9% and 27.2% compared to 29.1%32.5% and 31.0% for the same periods in fiscal 2025.

Consolidated selling expenses from continuing operations for the three and six months ended FebruaryMay 28,31, 2026 were $437,000,$434,000, and $870,000, respectively, compared to $350,000$436,000 and $786,000 for the same periodperiods in fiscal 2025. The increase in selling expenses is due to increased commissions and royalties onfrom increased sales along with additional targeted advertising campaign expenditures.expenditures in fiscal 2026. Selling expenses as a percentage of sales were 6.6%6.0% for the threesix months ended FebruaryMay 28,31, 2026 compared to 6.8%6.9% for threethe six months ended FebruaryMay 28,31, 2025.

Consolidated engineering expenses from continuing operations were $107,000$94,000 for the three months ended FebruaryMay 28,31, 2026 compared to $85,000$84,000 for the same period in fiscal 2025. Consolidated engineering expenses from continuing operations were $201,000 for the six months ended May 31, 2026 compared to $169,000 for the same period in fiscal 2025. The increase in engineering expenses is related to additional research and development costs incurred in 2026 as we made product changes that we felt could drive more sugar beet product demand. Engineering expenses as a percentage of sales were 1.6%1.4% for the threesix months ended FebruaryMay 28,31, 2026, compared to 1.7%1.5 % for the same period in fiscal 2025.

Consolidated administrative expenses from continuing operations for the three-three month periodmonths ended FebruaryMay 28,31, 2026 were $1,038,000$1,218,000 compared to $1,059,000$1,029,000 for the same period in fiscal 2025. Consolidated administrative expenses from continuing operations for the six months ended May 31, 2026 were $2,256,000 compared to $2,088,000 for the same period in fiscal 2025. Administrative expenses as a percentage of sales were 15.6% for the threesix months ended FebruaryMay 28,31, 2026, compared to 20.6%18.2% for the same period in fiscal 2025. Administrative expenses have decreased slightlyincreased in fiscal 2026 despite the increase in sales as we have not replaced overhead cut in previous years. We continue to be conscious of adding additional overhead while market conditions are still slow in the Agricultural Products segment.

Consolidated net income was $196,000$173,000 for the three-month period ended FebruaryMay 28,31, 2026, compared to net lossincome of $56,000$1,482,000 for the same period in fiscal 2025. WeConsolidated arenet reportingincome positivewas operating$370,000 resultsfor the six-month period ended May 31, 2026, compared to net income of $1,426,000 for the same period in bothfiscal 2025. In the six months ended May 31, 2025 we received approximately $1,154,000 of ourEmployee businessRetention segmentsCredit throughrefunds net of preparation fees and tax, which is the firstprimary quarterreason offor our decrease in net income for fiscal 2026. Overall we did see improved income from operations for both the three and six months ended May 31, 2026. The small uptick in the agricultural market coupled with cost cutting procedures enacted in fiscal 2024 in the Agricultural Products segment has stabilized our operating resultresults to prepare us for a potential future uptrend in the agriculture cycle. We continue to focus on remaining competitive with pricing, features and availability to ensure we are considered for retail opportunities. Our Modular Buildings segment's success is expected to continue as solid leads make their way to our sales team.

The consolidated order backlog net of discounts as of AprilJuly 7, 2026 was $7,287,000$2,744,000 compared to $4,482,000$4,407,000 as of AprilJuly 7, 2025, a 62.6%37.7% increase.decrease. The order backlog in our Agricultural Products segment was $2,774,000$1,413,000 as of AprilJuly 7, 2026 compared to $2,016,000$863,000 in fiscal 2025, a 37.6%63.7% increase. Demand has remained steady throughout fiscal 2026 for our agriculture products and is much improved from a year ago due to higher row crop prices and record cattle prices. The backlog for the Modular Buildings segment was $4,513,000$1,332,000 as of AprilJuly 7, 2026, compared to $2,466,000$3,544,000 in fiscal 2025, ana 83%62.4% increase.decrease. Quoting activity in both the research and agriculture buildings markets have been strong so far in fiscal 2026, with further contracts expected to execute with customers we are performing design agreements for. Our order backlog is not necessarily indicative of future revenue to be generated from such orders due to the possibility of order cancellations and dealer discount arrangements we may enter into from time to time.

Our primary source of funds for the threesix months ended FebruaryMay 28,31, 2026 was cash generated by operating activities including profitability and the increase of customer deposits and accounts payable as we incurred costs on construction contracts. We expect the collection of accounts receivable, progress on construction contractscontracts, and reduction of inventory to be primary sources of cash for the remainder of fiscal 2026. We expect our primary cash needs for the remainder of the fiscal year to be tied to operating expenses and retirement of debt.

As of FebruaryMay 28,31, 2026, our revolving credit line (the "Line of Credit") had an outstanding principal balance of $3,431,937.$3,495,438. We renewed our revolving line of credit with Bank Midwest on March 19, 2026, with a scheduled maturity date of March 30, 2027. In our most recent renewal, we negotiated an interest rate 50 basis points lower than our previous line of credit tied to SOFR to recognize expected interest rate decreases sooner. Bank Midwest's credit committee has preapproved an additional $1,500,000 of principal for the 2026 renewal, consistent with the borrowing availability of our previous line of credit, in the event we need additional funding. On June 22, 2026, we entered into a credit facility consisting of a $500,000 revolving line of credit (the “Reserve Line of Credit”). The Reserve Line of Credit is secondary to the Line of Credit and will be utilized upon the Line of Credit reaching capacity. The Reserve Line of Credit was activated to pay large equipment deposits on a new fiberoptic laser and crane system. The deposits and balance of this equipment will be converted to a term loan when installation is complete later this year. The Company expects this capital expenditure will improve quality, efficiency and reliability of our products.